How to Create a Flexible Budget for Your Startup in Uncertain Times
During periods of economic uncertainty or market unpredictability, having a flexible budget becomes essential for navigating uncertainty while adjusting spending as conditions evolve.
Unlike static budgets that remain fixed and do not consider external changes, a flexible budget is more adaptable, ensuring that startups can maintain control while capitalizing on new opportunities.
As experts in helping startups and emerging growth companies establish budgeting success and efficiency, we’ve outlined the steps to create a flexible budget that supports growth and financial resilience.
Top Tips & Steps to Create a Flexible Budget for Your Startup During Periods of Economic Uncertainty
- Understand your company’s core financials
- Set clear financial goals and objectives
- Develop and implement rolling forecasts
- Conduct scenario planning
- Make cash flow monitoring a top priority
- Revisit and adjust your budget on a regular basis
- Consider hiring a budgeting and forecasting consultant
1. Understand your startup or emerging growth company’s core financials
The first step in creating a flexible budget is to gain a solid understanding of your startup or emerging growth company’s core financials, including fixed and variable expenses, revenue streams, and cash flow projections.
A comprehensive view of these numbers is essential to building a budget that can be adjusted as needed. By knowing which expenses are essential and which are not, you can more easily identify areas to apply flexibility.
Core financial elements to focus on:
- Fixed Costs: Rent, salaries, and recurring subscription services that remain consistent month-to-month.
- Variable Costs: Marketing, utilities, and operational expenses that fluctuate based on demand.
- Cash Flow Projections: Detailed forecasts that account for seasonality, customer behavior, and market trends.
2. Set clear financial goals and objectives
In uncertain financial times, it’s essential to differentiate between “must-haves” and “nice-to-haves.” Prioritizing necessary costs will allow you to change direction without compromising the goals of your startup or emerging growth company.
While innovation and growth are essential, retaining focus on financial priorities will ensure your startup can continue operating effectively – even when faced with unforeseen challenges.
Questions to ask when developing financial goals and objectives:
- Which areas are critical to keep the business running (e.g., product development, customer service)?
- Which initiatives can be accelerated or slowed based on available capital (e.g., marketing campaigns, expansion plans)?
- How much liquidity do we need to maintain for emergency purposes?
3. Develop and implement rolling forecasts
Implementing a rolling forecast is essential for creating a more adaptable financial plan and updating projections on a quarterly or monthly basis. This approach allows you to adjust your budget in real time as market conditions shift.
Advantages of rolling forecasts:
- Regular updates ensure that your budget reflects the current business environment, helping you stay responsive to market trends.
- Rolling forecasts allow you to model multiple financial scenarios, preparing your startup or emerging growth company for both growth and downturns.
- With frequent reviews, leadership can make informed decisions on how best to allocate resources.
4. Conduct scenario planning
Flexibility is about preparing for various outcomes. Scenario planning is essential in uncertain times as it enables you to create multiple versions of your budget, each tailored to different situations.
By developing these scenarios, you’ll have a pre-set strategy for managing your budget in any situation.
5. Make cash flow monitoring a top priority
A flexible budget is only effective if you maintain a detailed understanding of your cash flow ongoings. For best results, omplement tools that allow for real-time cash flow tracking, enabling you to make informed decisions quickly.
Best practices for cash flow monitoring:
- Conduct weekly or monthly cash flow reviews to stay ahead of any shortfalls.
- Create a short-term (30-60 day) cash flow plan to ensure liquidity during turbulent times.
- Use expense management tools to gain real-time cash flow visibility, ensuring you can make prompt adjustments.
6. Set up a cadence to revisit and adjust your budget on a regular basis
One of the key components of a flexible budget is the ability to review and adjust often. Financial plans are not one-and-done; they must evolve as your startup grows and as external conditions change.
For best results, revisit your budget frequently, and ensure your team is aligned on any new priorities or changes in spending.
7. Consider hiring a budgeting and forecasting consultant
While many startups and emerging growth companies handle budgeting internally, there are many times when bringing in external expertise can be more beneficial — especially during periods of market uncertainty.
A seasoned budgeting and forecasting consultant can provide objective insights, identify financial risks, and help you implement best practices that may not be immediately apparent to an internal team.
These experts can also help you create flexible, dynamic financial models that adapt as your business evolves.
Final Thoughts on How to Create a Flexible Budge for Your Startup in Uncertain Times
By understanding financials, setting clear priorities, and implementing rolling forecasts and scenario planning, your startup or emerging growth company will be perfectly equipped to build a budget that supports resilience and growth.
At Kranz, we offer a comprehensive suite of budgeting and forecasting services to help you chart a reliable path forward. Contact us today or learn more about our strategic financial services here.